Secret government business: mixing money and politics

During the 20 hours Malcolm Turnbull spent when he was last in WA, a couple of them were with a few business people.

When Bill Shorten was in WA earlier this year he also spent time with donors and supporters.

It’s part and parcel of running for elected office. Money — be it from mums and dads with a few hundred dollars to big spending corporates or unions — helps run political parties.

And with that money comes access. It could be a special fundraising dinner or maybe a beer and a smoke at the back of a community hall, but in both cases there is the ability to talk to a senior member of one of the two major political parties of this country.

Money buys access. So what does access buy?

Economists Jeffrey Brown and Jiekun Huang have given some insight into that very question with some fascinating research which they’ve titled “All the President’s Friends: Political Access and Firm Value”.

The starting point is some valuable data.

They trawled through the official visitor log to the White House and came up with the names of executives of companies listed on the S&P1500 between January 2009 and December 2015.

This gave them a list of 2286 meetings between company executives and officials from the Obama administration (including president Obama himself).

And what they found from this information should send a shiver down anyone who doesn’t have a chance to speak directly to their commander-in-chief.

“Consistent with the notion that campaign contributions ‘buy’ access, we find that firms that contributed more to Obama’s presidential election campaigns are more likely to have access to the White House,” they found.

“We also find that firms that spend more on lobbying, firms that receive more government contracts, larger firms, and firms with a greater market share are more likely to have access to influential federal officials.”

The two economists calculated the “cumulative abnormal returns” (CAR) on those firms that got meetings with the Obama administration.

The biggest gains went to firms that had a direct meeting with the president or his top aides.

For the 51-day window in the run-up and after a meeting there was a CAR of about 0.9 per cent.

The biggest gains went to firms that had a direct meeting with the president or his top aides.

We are talking about some of the biggest names in corporate America. General Electric, Xerox, Chevron, JPMorgan, Blackrock and Motorola all had more than 15 meetings with the Obama administration in the period studied.

And of the visits, president Obama sat in on 100 of them.

Now, being a democracy, with winners there are losers.

And the losers appeared soon after it was clear Donald Trump was going to follow Barack Obama as President.

Camera IconPresident Donald Trump listens to a question during a town hall with business leaders in the South Court Auditorium in the White House complex in Washington in April 2017.Picture: Evan Vucci\AP Photo

Brown and Huang found that after it was clear President Trump would move into the White House, the share price of those firms who appeared to have links to president Obama fell sharply.

“The economic magnitude is non-trivial as well: after controlling for various factors that are likely correlated with firms’ political activities, such as campaign contributions, lobbying expenses, and government contracts, the stocks of firms with access to the Obama office underperform the stocks of otherwise similar firms by about 80 basis points in the three days immediately following the election,” they found.

The two economists were able to shed a light on the financial benefits of getting access to a president, because of the availability of data.

Compare this with the way our Federal and State governments go out of their way to hide their meeting schedules.

There is no official log of visitors to the Federal (or State) government. Yes, journalists occasionally fall across someone who they recognise coming in and out of the ministerial offices of the Federal Parliament, for instance, but no such log is publicly available.

Attorney-General George Brandis spent three years and thousands of dollars fighting a Freedom of Information request from the ALP to release his diary from 2014.

Camera IconAttorney General George Brandis at a press conference at Parliament House in Canberra in September 2014Picture: Lukas Coch\AAP

Similar requests for diaries from past PMs have gone nowhere in recent years as governments (of both persuasions) seek to hide the influencers who get valuable time with the nation’s head.

Just last week we had the strange situation where the Federal Government demanded representatives from the nation’s biggest banks sign non-disclosure statements regarding the legislation that will underpin the new bank levy.

Remember, this legislation is destined to be introduced into the Parliament within the next fortnight. The secrecy demanded over legislation that will affect almost every person in the country (either via their bank accounts or their superannuation accounts) didn’t pass the sniff test.

And with secrecy comes mistakes or special deals that might be at the expense of someone — usually ordinary people.

Brown and Huang admit there may be good reason for businesses to meet with politicians and advisers.

“(It) may enable firms to provide policy-relevant information, which in turn helps elected officials to make more informed decisions on policies that affect the firms,” they found.

But there are other reasons.

“At one end of the spectrum, gaining access to politicians may enable firms to gain undue influence over elected officials and extract political favours,” they said.

The Federal Parliament already has a lobbyist register but it contains big loopholes.

Our Federal electoral donor rules are also incredibly lax. That starts from the donation threshold (now $13,200) to third party organisations to even timeliness of donations. Then there is the secrecy surrounding meetings between our political leaders and those who would demand time and access with those leaders.

It’s a blight on democracy that voters don’t know who is providing insights to our elected officials.

But it is also an economic argument. A key part of a market economy is that consumers and suppliers have “perfect information” so they can act accordingly. At the moment consumers are being deliberately left in the dark.